The Future of American Manufacturing – Is there Reason for Hope?

While the state of American manufacturing has been grim for the past decade, the “reshoring” trend and new technologies are making the outlook for the future of American manufacturing look brighter than it now appears.

In the past few years, the key factors for returning manufacturing to America have been quality problems, rising labor costs, intellectual property theft, rising shipping costs, long lead times for product delivery from Asia, and the cost of inventory for the larger lots you have to buy from Asia to get the cheaper prices.

Now, Harry Moser’s Total Cost of Ownership worksheet calculator is helping companies quantify the hidden costs of doing business offshore enabling more companies to make the decision to reshore manufacturing. According to Harry Moser, founder of the “Reshoring Initiative about 10% of companies nationwide are bringing manufacturing back to America from Asia. It is a pleasure to read frequent stories about even large companies such as Dow Chemicals, Caterpillar, GE, and Ford starting to move some manufacturing back to the U.S. from China.

“But rising costs and political pressure aren’t what’s going to rapidly change the equation.” according to Vivek Wadhwa, Vice President of Academics and Innovation at Singularity University. “The disruption will come from a set of technologies that are advancing at exponential rates and converging. These technologies include robotics, artificial intelligence (AI), 3D printing, and nanotechnology. These have been moving slowly so far, but are now beginning to advance exponentially just as computing does.”

In the past, large American food product companies like General Mills and Kraft Foods, as well as the automotive industry, have been the biggest user of complex robotic systems. But, today’s robots are smaller and cheaper ─ they are really specialized electromechanical devices run by software and remote control designed to perform specific tasks in the manufacturing of products for a variety of industries. These robots are cost effective for lower production volume than those used in the food and automotive industry enabling more companies to utilize this technology.

Artificial Intelligence (AI) is really the software that makes computers, robots, and even unmanned aircraft and space vehicles run in an “intelligent” manner. Unmanned vehicles have dominated the sky in the “war on terror” in Iraq and Afghanistan and are now being used to provide surveillance along our international border with Mexico. The unmanned rover, “Curiosity,” traversing the surface of Mars is an example of the latest AI technology. Additive manufacturing is the process of producing parts by successive melting of layers of material rather than removing material, as is the case with conventional machining. Each layer is melted to the exact geometry defined by a 3D CAD model. Additive Manufacturing allows for building parts with very complex geometries without any sort of tools or fixtures, and without producing any waste material.”

This process, also known as 3D printing, is turning product designs into reality for a fraction of the cost of past manufacturing technologies. The application of this technology started as a way to make prototypes faster and cheaper. What is great about parts made by this process is that they are not just the fragile prototype parts previously made by stereo lithography technology; parts made by 3D printing can function as production parts.

A simple tabletop 3D printing device, such MakerBot’s Replicator, is now down to about $1,700 for use in home workshops, making the technology more accessible to students, researchers, do-it-yourself enthusiasts, hobbyists, inventors and entrepreneurs.

Millions of dollars of government-funded research in additive manufacturing has led to breakthroughs and cost reduction in the utilization of this technology. Large, complex geometry parts that had to be made by casting and forging with expensive tooling are now being made by laser sintering of metals such as tool steel, stainless steel, cobalt chrome-moly, and other steel alloys. While Selective Laser Sintering (SLS) and Direct Metal Laser Sintering (DMLS) began as a way to build parts early in the design cycle, it is now being used to manufacture end-use parts. Depending on the material, up to 100% density can be achieved with material properties comparable to those found with traditional manufacturing methods.

There are many applications for the laser sintering method of additive manufacturing in the aerospace and defense industry because of the low volume requirements. The cost of amortizing expensive casting and forging tooling into low volume production was the main reason for the $600 hammers and $900 toilet seats of the defense spending scandals 20 years ago.

Even the tooling to make simple injection molded plastic parts can now be made by this technology, helping keep some plastic injection molding work in the U. S. that used to go to China.

We are just beginning to see advances in nanotechnology that will affect manufacturing in the next decade. Nanotechnology (sometimes shortened to “nanotech”) is the manipulation of matter on an atomic and molecular scale. Generally, nanotechnology works with materials, devices, and other structures with at least one dimension sized from 1 to 100 nanometers.

Since the creation of the National Nanotechnology Initiative in 2000, the U. S. has invested 3.7 billion dollars. “The NNI involves the nanotechnology-related activities of 25 Federal agencies, 15 of which have specific budgets for nanotechnology R&D. The agencies involved allocate expenditures from their core budgets, demonstrating nanotechnology’s importance to their mission.”

Today, engineers and scientists are developing new types of materials, such as carbon nanotubes, ceramic-matrix nanocomposites, and new carbon fibers. These new materials are stronger, lighter, more energy-efficient, and more durable than current materials in use.

These advances in technology will be a real boon to the U. S. manufacturing industry in the next 5 – 10 years, but they will have a dramatic impact on China as well. Large Chinese manufacturing companies such as Foxconn are starting to utilize robotics, which will cause a reduction in the Chinese labor force just as it did in the U. S. a generation ago.

It is unlikely that the 10% of products being returned to the United States from China is affecting China’s unemployment rate, but the serious financial problems of several countries in the European Union is taking its toll on China’s exports to these countries. While China reported a low unemployment rate of 4.1% in July 2012, this needs to be understood in the context of the size of China’s workforce. The Chinese workforce is so large that there are actually more people unemployed in any one month in China than the total workforce of the United States.

In February 2011, Marketplace Business China correspondent, Rob Schmitz, explained the unemployment situation in China, stating, “Now that’s what’s called the ‘urban registered unemployment rate.’ I emphasize ‘registered,’ because it only counts people who officially live in urban areas. Many people are off the books. These are the hundreds of millions of migrant workers who move to the cities and they make up a huge labor pool. So when you factor in that population, China’s actual unemployment rate comes out to be 22 percent. That’s around 200 million people who don’t have work.”

If China wants to avoid headlines of massive unemployment as the U. S. has experienced, the Chinese government needs to change its focus from an export-driven economy to a domestic-driven economy. This will require a far greater increase in wages than has occurred in the past few years so that the average Chinese worker will be able to buy the products they are now producing for export.

It may be worth thinking about emulating the strategy that Henry Ford utilized in 1914 when he wanted to stabilize his workforce ─ he decided to pay double the average daily wage. This had a twofold result: he kept his employees from quitting his company to take a job at another company for a slightly higher wage, and the higher wages his company paid enabled his workers to be able to buy the Model T car they were making.

If China’s industry switched to manufacturing more products for their domestic marketplace, it would also help reduce the unemployment for their college graduates. As Rob Schmitz explained in the same article, “Nearly a quarter of last year’s graduates haven’t found jobs. Part of the problem is that there is a big disconnect between how China’s colleges are preparing its young people and the reality of China’s economy. China’s economy is still mostly dependent on manufacturing and building things. At the same time, you have six million college students a year graduating with degrees from everything from the sciences to liberal arts. And China’s economy simply hasn’t evolved to the point where enough employers are looking for workers with those skills.”

It is becoming apparent that more and more Americans now realize that manufacturing jobs are the foundation of the prosperity of our country and that we need to be producing a major portion of goods domestically in order to have a strong manufacturing industry and thus a strong economy. It may be China’s turn to learn this lesson.